The Employees Provident Fund has become one of the most important savings instruments for salaried individuals in India. It not only helps in accumulating wealth over the course of employment but also provides tax benefits and financial security in retirement. For decades, provident fund schemes have been instrumental in encouraging disciplined saving habits among employees.
This article covers the basics of provident funds, why they are maintained, and how contributions are made. It also dives into the different categories of provident funds and explains the taxability of contributions.
What is a Provident Fund
A provident fund is essentially a compulsory savings mechanism in which a certain portion of an employee’s salary is deducted every month and deposited into a fund. The employer is also required to contribute an equal percentage of the salary to the employee’s fund. Over time, these regular contributions, along with the interest earned, accumulate into a sizable retirement corpus.
Employees are able to withdraw the entire accumulated amount at retirement. In certain circumstances such as resignation, illness, or death, partial or full withdrawals may also be made earlier. This combination of compulsory savings and employer support makes the provident fund an effective financial cushion for salaried employees.
There are two major types of provident funds commonly used in India – the Employees’ Provident Fund (EPF) and the Public Provident Fund (PPF). While both serve the purpose of long-term saving, they differ in terms of contributors, applicability, and tax treatment.
Why Provident Fund Accounts are Maintained
Provident fund accounts are not just another form of savings account. They are maintained with a specific purpose, primarily to safeguard the financial future of employees.
Encouraging Regular Saving
One of the key reasons for maintaining provident fund accounts is to instill the habit of saving among employees. Since contributions are deducted directly from the salary before it reaches the employee, there is little chance of missing out.
Ensuring Retirement Security
A large number of people in India do not have access to personal pension schemes or retirement savings. The provident fund provides them with a structured system that ensures a substantial lump sum upon retirement.
Access to Funds in Emergencies
Provident funds also allow partial withdrawals in emergencies such as hospitalization, education expenses, or housing needs. This provides a safety net without disrupting the employee’s financial planning.
Tax Advantages
Contributions to provident funds qualify for deductions under Section 80C of the Income Tax Act. The interest earned, up to a certain limit, is also tax-free. This dual benefit encourages more participation in the scheme.
Protection of Family Members
In case of the death of the employee, the accumulated provident fund balance is transferred to the nominee or legal heirs. This ensures that the family does not face sudden financial hardship.
Types of Provident Funds
The provident fund system is divided into different categories depending on the nature of the organization and recognition under income tax laws.
Statutory Provident Fund (SPF)
The Statutory Provident Fund was established under the Provident Fund Act of 1925. It is meant for employees of government organizations, universities, recognized educational institutions, railways, and other statutory bodies. Contributions made to this fund are eligible for exemptions, and withdrawals are generally tax-free.
Recognised Provident Fund (RPF)
A recognised provident fund refers to any provident fund that is recognized by the Commissioner of Income Tax under Part A of the Fourth Schedule of the Income Tax Act. This category also includes funds established under the EPF Act of 1952. It is widely used by private companies, banks, insurance firms, and factories. The contributions made by both employer and employee to this fund qualify for tax deductions within prescribed limits.
Unrecognised Provident Fund (URPF)
Any provident fund that is not recognized by the Commissioner of Income Tax is categorized as an unrecognised provident fund. These are usually set up by private organizations without formal recognition. While employees may still contribute, the tax benefits and exemptions available in recognized funds are not applicable. Withdrawals from such funds are also taxed differently.
Public Provident Fund (PPF)
The Public Provident Fund scheme is open to all resident individuals and was introduced to encourage long-term savings among self-employed individuals or those working in the unorganized sector. Unlike the EPF, only the individual contributes to the PPF account. Deposits in the account qualify for deductions under Section 80C, and the interest earned is completely exempt from tax. The PPF has a lock-in period of 15 years, which can be extended in blocks of 5 years.
Contribution Mechanism in EPF
Contributions form the core of the EPF scheme. Both the employee and employer are responsible for contributing a fixed percentage of the employee’s salary every month.
Employee’s Contribution
The employee contributes a specific percentage of their basic salary and dearness allowance towards the EPF. This contribution directly goes into the EPF account and earns interest annually. Employees have the option to voluntarily contribute more than the statutory percentage, although the employer is not obligated to match the excess contribution.
Employer’s Contribution
The employer makes a matching contribution to the employee’s account. However, the contribution is split into two parts. A portion is credited to the employee’s EPF account, while a part is diverted to the Employees’ Pension Scheme (EPS). The exact split depends on government regulations and salary thresholds.
Government’s Role
In certain cases, particularly for employees earning lower wages, the government may also contribute to the provident fund. This initiative aims to encourage formal employment and social security.
Interest on Provident Fund Balances
The Employees’ Provident Fund Organisation announces the interest rate on provident funds annually. The declared rate is applied to the balance in the employee’s account and credited at the end of the financial year. Interest is compounded, which significantly increases the corpus over time.
The interest earned is exempt from tax up to a specified limit. Any interest earned on contributions beyond the prescribed threshold is taxable. This measure was introduced to prevent high-income earners from using provident funds purely as a tax-free investment avenue.
Taxability of Provident Funds
Provident funds enjoy favorable tax treatment, but the rules differ depending on the type of contribution and the duration of service.
Employee’s Contribution
The employee’s contribution is eligible for deduction under Section 80C of the Income Tax Act. This means that up to the prescribed limit, the amount contributed can be deducted from taxable income, lowering the overall tax liability.
Employer’s Contribution
Employer’s contribution is exempt up to a certain threshold. If the total contribution by the employer to EPF, National Pension Scheme, and Superannuation Fund exceeds the notified ceiling in a financial year, the excess becomes taxable in the hands of the employee.
Interest on Balance
The interest earned on provident fund balances is tax-free up to the limit prescribed by the government. Any interest beyond this limit becomes taxable as per applicable rules.
Withdrawal After Five Years of Service
If the employee withdraws the provident fund balance after completing five years of continuous service, the entire withdrawal is tax-exempt. The five-year period includes service with multiple employers if the provident fund balance has been transferred rather than withdrawn at the time of job change.
Withdrawal Before Five Years of Service
Withdrawals made before completing five years of service are fully taxable. Additionally, any tax deductions claimed earlier under Section 80C are reversed. The only exceptions to this rule are withdrawals due to reasons such as illness, death, or closure of the employer’s business.
Importance of Contributions and Tax Treatment
The contribution mechanism and tax treatment are designed to encourage employees to retain their funds until retirement. By providing tax benefits on contributions and making long-term withdrawals tax-free, the system ensures employees are motivated to keep their savings intact. At the same time, by taxing premature withdrawals, the system discourages employees from dipping into their retirement savings unnecessarily.
Checking Provident Fund Balance
One of the most common requirements for employees is to know the accumulated balance in their provident fund account. With the introduction of Universal Account Numbers (UAN) and integration with digital platforms, checking PF balance has become easier than ever. Employees can now view their balance through the EPFO portal, UMANG application, SMS, and even a simple missed call.
Balance Check via EPFO Portal
The EPFO portal is the primary online platform for all provident fund-related services. To check balance on this portal, the employee must have an activated UAN. The UAN is a unique number assigned to each employee, which remains constant throughout the employment span, even if the employee changes jobs.
Steps to check balance on the portal:
- Visit the EPFO website and navigate to the section labeled Our Services.
- Select For Employees from the available menu.
- Under the services section, click on Member Passbook.
- Log in using UAN and password credentials.
- Select the Member ID linked with the UAN and click on View Passbook.
- The balance along with details of monthly contributions will appear on the screen.
The passbook can also be downloaded in PDF format for record-keeping.
Balance Check via UMANG App
The UMANG mobile application was introduced as part of the Digital India initiative and integrates multiple government services in one platform. EPFO services are among the most frequently used on the app.
Steps to check PF balance on UMANG:
- Download the UMANG app from Google Play Store or Apple App Store.
- After registering with a mobile number, go to All Services.
- Select EPFO from the list of available services.
- Under Employee Centric Services, select View Passbook.
- Enter the UAN and authenticate with OTP to access balance details.
Apart from viewing balance, employees can also file claims, track claim status, and download statements from the app.
Balance Check via Missed Call Facility
Employees who may not have easy access to the internet can use the missed call service to know their PF balance. By giving a missed call to the designated number from their UAN-registered mobile, they will receive an SMS with details of the account.
To use this facility, the employee must ensure that the UAN is linked with Aadhaar, PAN, and bank account details. The registered number for this service is 9966044425.
Balance Check via SMS Service
The SMS service is another simple method to check PF balance. Employees need to send an SMS to 7738299899 in the format:
EPFOHO UAN <Language Code>
Language codes vary according to preference, for example ENG for English, HIN for Hindi, and other codes for regional languages. Similar to the missed call facility, this service works only if the UAN is linked with Aadhaar, PAN, and bank account information.
Understanding the PF Passbook
The passbook is an official record of all contributions and interest credited to the provident fund account. It contains details of monthly deposits by both employee and employer, the allocation towards pension, and the running balance after every transaction.
Information Contained in the Passbook
- Name and Member ID of the employee
- Establishment details and EPF office code
- Opening balance at the start of the financial year
- Monthly contributions by employee and employer
- Contributions diverted to the pension scheme
- Interest credited at the end of the year
- Closing balance available for withdrawal or transfer
The passbook is updated regularly and provides transparency in terms of contributions. Employees can use it to verify whether employers are depositing the contributions on time.
Contribution to Provident Fund Accounts
The provident fund system relies on regular contributions by both employee and employer. While Part 1 explains the structure of contributions, this section provides a practical view of how these contributions appear in the passbook and how they impact withdrawals.
Employee Contributions
The standard contribution by an employee is a fixed percentage of basic salary and dearness allowance. This contribution is fully credited to the employee’s EPF account and earns interest. Employees also have the option of contributing more than the minimum through a voluntary provident fund arrangement.
Employer Contributions
The employer’s contribution is divided between the EPF account and the pension scheme. A portion goes directly to the provident fund, while another portion is allocated to the Employees’ Pension Scheme (EPS). The split is predefined and depends on the salary structure of the employee.
Reflection in the Passbook
When employees check their passbook, they will see monthly entries showing both contributions separately. The cumulative balance grows over time with interest being credited at the end of the year.
PF Account Number
Every employee who is enrolled in the provident fund system is allotted a unique PF account number. This number is essential for all PF-related transactions including balance checks, withdrawals, and transfers.
Structure of PF Account Number
The PF account number is not just a random string of digits. It has a specific format that includes codes for region, office, establishment, and the employee.
For example:
KN/BN/12345/678910
- KN represents the state code
- BN represents the regional office
- 12345 is the establishment code
- 678910 is the employee number
This structured format allows the EPFO system to identify the exact office and establishment where the contributions are being deposited.
How to Obtain PF Account Number
The PF account number is provided by the employer at the time of registration. Employees can find it on their salary slip, PF statement, or by logging into the EPFO portal using UAN. If there is any difficulty in obtaining it, the employer’s HR department should be contacted.
Online Claim Filing Process
The claim settlement process has been greatly simplified through online filing. Employees can now submit withdrawal and transfer requests directly through the EPFO portal without visiting the office physically.
Steps to File an Online Claim
- Log in to the EPFO Member e-Sewa portal using UAN and password.
- Select Online Services from the main menu.
- Click on Claim (Form-19, Form-31, Form-10C, and Form-10D).
- Verify bank details linked with UAN.
- Accept the terms and proceed to claim selection.
- Choose the type of claim such as withdrawal, advance, or pension.
- Enter required details such as address, withdrawal amount, or purpose of advance.
- Upload scanned copies of supporting documents if required.
- Authenticate with Aadhaar OTP to complete the submission.
Once submitted, the claim is forwarded to the employer for digital verification and then processed by EPFO. The approved amount is directly credited to the bank account linked with UAN.
Documents Required for Claim
The type of documents required depends on the nature of the claim. Commonly required documents include:
- Aadhaar card
- PAN card
- Cancelled cheque or bank passbook copy
- Address proof
- Medical certificates in case of illness-related withdrawal
- Death certificate for nominee claims
Timelines for Settlement
EPFO aims to settle claims within a few working days. For online claims, the process is usually faster compared to offline applications, provided the employee’s KYC is complete and verified.
Role of Different Claim Forms
Different forms serve different purposes in the claim process. Employees must select the correct form depending on the requirement.
- Form 19 is used for final settlement of provident fund balance after leaving employment.
- Form 10C is used for withdrawal benefits or obtaining a scheme certificate under the Employees’ Pension Scheme 1995.
- Form 10D is used to claim monthly pension benefits.
- Form 20 is used by nominees or legal heirs to claim PF balance in case of the member’s death.
- Form 31 is used for partial withdrawals or advances against the PF balance.
- Form 13 is used to transfer PF balance from one employer to another.
- Form 14 is used to pay life insurance premiums from the PF account.
Employees must ensure accurate details are provided while filling forms to avoid delays in processing.
Benefits of Online Services in Provident Fund Management
The digitalization of provident fund services has brought significant convenience for employees. Instead of standing in long queues at EPFO offices, employees can now manage almost every aspect of their PF account online.
Accessibility and Transparency
Employees can track contributions in real-time, download passbooks, and confirm that employers are depositing funds regularly. This reduces dependency on HR departments and provides direct access to information.
Quick Settlement of Claims
With Aadhaar-based authentication and employer digital verification, claim processing is faster and more efficient. Employees receive funds directly into their bank accounts without physical paperwork.
Reduced Errors
Since most processes are automated and linked to the UAN, the chances of errors in account details are significantly reduced. Employees also receive regular updates via SMS and email.
Enhanced Security
By linking UAN with Aadhaar, PAN, and bank account details, EPFO ensures that only the rightful employee or nominee can access the account. This prevents fraudulent withdrawals and unauthorized access.
Tax Treatment of Contributions
Both employees and employers contribute to provident fund accounts, but their tax implications vary depending on the type of fund and whether the contribution exceeds prescribed limits.
Employee’s Contribution
The contribution made by the employee qualifies for deduction under Section 80C of the Income Tax Act. The maximum amount eligible for deduction is subject to the overall limit under Section 80C, which also includes other eligible investments. Any amount contributed beyond the limit does not enjoy tax benefits.
Employer’s Contribution
The employer’s contribution to an employee’s provident fund account is exempt from tax up to a certain threshold. If the total employer contribution to recognised provident fund, superannuation fund, and National Pension System exceeds the prescribed combined limit, the excess portion becomes taxable in the hands of the employee.
Interest Credited on Contributions
Interest earned on provident fund balances is generally exempt up to a specified rate. However, when contributions exceed notified thresholds, the interest accrued on the excess portion becomes taxable. This rule ensures that provident fund accounts are not misused as high-interest investment avenues for large voluntary contributions.
Taxability of Withdrawals
The treatment of provident fund withdrawals depends on the length of service, type of fund, and circumstances leading to withdrawal.
Withdrawal After Five Years of Continuous Service
If an employee withdraws provident fund balance after completing five years of continuous service, the entire amount is exempt from tax. The five-year condition is calculated across different employers, provided the PF balance has been transferred instead of withdrawn when changing jobs.
Withdrawal Before Five Years of Service
When withdrawal takes place before completing five years of continuous service, the amount becomes taxable unless the withdrawal is due to special reasons such as illness, closure of business, or death of the employee. In such cases, exemptions are provided to protect employees from hardship.
If taxable, the following rules apply:
- Employer’s contribution becomes fully taxable as salary.
- Employee’s contribution is taxable if deduction was earlier claimed under Section 80C.
- Interest on an employer’s contribution is taxable as salary.
- Interest on an employee’s contribution is taxable as income from other sources.
Tax deducted at source may also apply if the withdrawal amount exceeds the prescribed limit. Relief under Section 89 can be claimed for any additional tax burden arising due to premature withdrawal.
Withdrawals on Death of Employee
In case of the employee’s death, the entire balance in the provident fund account is paid to nominees or legal heirs. Such withdrawal is completely exempt from tax, regardless of the employee’s length of service.
Premature Withdrawals and Advances
The Employees’ Provident Fund scheme permits employees to withdraw funds in specific circumstances even before retirement. These partial withdrawals are treated differently from complete withdrawals.
Conditions for Partial Withdrawal
Employees can apply for advances from their provident fund account for the following purposes:
- Medical treatment of self or family
- Higher education or marriage expenses of children
- Purchase or construction of house
- Repayment of home loan
- Damage caused by natural calamities
- Unemployment for a specified period
The eligibility, maximum amount, and documentation required vary depending on the purpose of withdrawal. Unlike full settlement, these advances do not attract tax if made in accordance with the scheme rules.
Advances vs Final Settlement
While advances are partial withdrawals that can be taken during employment, final settlement of the provident fund occurs only upon retirement, resignation, or termination of employment. Advances are designed to provide financial relief without requiring employees to liquidate their entire retirement corpus.
Conversion of Unrecognised Provident Fund to Recognised Fund
Unrecognised provident funds are those not approved by the Commissioner of Income Tax. If an organisation later decides to obtain recognition, the unrecognised fund can be converted into a recognised fund. The conversion process has specific tax consequences for past contributions and interest.
Treatment of Balance Transferred
When an unrecognised provident fund becomes recognised, the accumulated balance is split into components:
- Employee’s past contribution remains non-taxable.
- Employer’s past contribution becomes taxable in the year of transfer to the extent it would have been taxable had the fund been recognised earlier.
- Interest on an employee’s contribution is taxable as income from other sources.
- Interest on an employer’s contribution is taxable as salary.
Treatment of Balance Not Transferred
If the accumulated balance in the unrecognised provident fund is not transferred to the recognised fund, it is taxable in the year of withdrawal, with similar rules applied to contributions and interest.
Claim Forms for Provident Fund Withdrawals
Different claim forms are prescribed for different purposes. Employees must choose the appropriate form depending on whether they are withdrawing, transferring, or applying for advances.
Form 19 – Final Settlement
Form 19 is used when an employee resigns, retires, or otherwise ceases to be employed. It allows withdrawal of the entire provident fund balance after verification by the employer.
Form 10C – Pension Withdrawal or Certificate
Form 10C is submitted for claiming withdrawal benefits under the Employees’ Pension Scheme 1995 or for obtaining a scheme certificate to carry forward service.
Form 10D – Pension Claim
Form 10D is used for claiming monthly pension benefits. It is applicable to employees who have completed the minimum pensionable service and to family members in case of the employee’s death.
Form 20 – Claim on Death of Member
Form 20 is used by nominees or legal heirs to claim the provident fund balance of a deceased employee. Supporting documents such as a death certificate and proof of relationship are required.
Form 31 – Advances or Temporary Withdrawals
Form 31 is designed for partial withdrawals for specific purposes such as medical emergencies, education, or house construction. Employees must specify the reason and provide supporting documents.
Form 13 – Transfer of PF Account
When an employee changes jobs, Form 13 is used to transfer the balance from the old employer’s account to the new employer’s account. This ensures continuity of service for tax exemption purposes.
Form 14 – Payment of Insurance Premiums
Employees can use Form 14 to request that provident fund contributions be used to pay life insurance premiums directly to the insurer.
Essential Details Required in Claim Forms
Each claim form requires specific information to validate and process the request. Common details include:
- Name of member
- UAN and PF account number
- Aadhaar and PAN details
- Date of joining and leaving service
- Bank account details with IFSC code
- Reason for withdrawal or advance
- Employer verification and digital signature
Incomplete forms or incorrect details may lead to rejection or delay in claim settlement. Employees must ensure that their Know Your Customer (KYC) documents are updated and verified in the EPFO system before filing any claim.
Compliance and Record-Keeping in Provident Fund
Compliance with provident fund regulations is essential for both employers and employees. Employers are responsible for timely deduction and deposit of contributions, while employees must monitor their accounts to ensure accuracy.
Employer’s Responsibility
Employers must register under the provident fund scheme, allocate PF account numbers to employees, deduct contributions from salary, and deposit them along with their share into the EPFO system within prescribed timelines. Any delay or default attracts penalties and interest.
Employee’s Responsibility
Employees should activate their UAN, regularly check passbooks, and ensure that contributions are being deposited by employers. They must also keep personal details such as Aadhaar, PAN, and bank account information updated to avoid issues during withdrawal.
Importance of Transparency
The digitalisation of provident fund services ensures transparency in the system. Employees can access their passbooks anytime, track contributions, and raise grievances if discrepancies are found. Transparency builds trust and strengthens the retirement planning framework.
Conclusion
The Employees’ Provident Fund represents one of the most reliable and structured savings mechanisms for salaried individuals in India. By ensuring consistent contributions from both employers and employees, it helps create a secure retirement corpus while also offering the flexibility of advances during times of financial need. The system is further strengthened by government regulations that safeguard contributions, ensure timely interest credit, and provide tax benefits for long-term participation.
Understanding the different types of provident funds, the methods to check balances, and the procedures for withdrawals allows employees to use the system effectively. Equally important is awareness of tax implications, since premature withdrawals and excess contributions can alter the treatment of benefits. For employers, strict compliance with contribution and reporting requirements helps maintain transparency and avoids legal complications.
The digitisation of services through the EPFO portal, UMANG application, SMS, and missed call facilities has made provident fund management more accessible than ever before. Employees no longer need to depend solely on employers for account details, and claims can be filed online with minimal paperwork.
In the long term, provident funds not only serve as a retirement safety net but also encourage disciplined savings. With proper planning, employees can integrate their provident fund with other financial instruments, such as pension plans, life insurance, and personal investments, to create a balanced financial portfolio. By leveraging the benefits of provident funds and staying compliant with rules, individuals secure not just their retirement but also financial stability for their families.